Business First Bancshares' Earnings Calls: Contradictions Emerge in Deposit Strategies, Loan Growth Expectations, and Fee Revenue Stability from 2023Q3 to 2025Q3

Date of Call: None provided

Financials Results

• EPS: Non-GAAP core EPS $0.71; GAAP EPS $0.76; run-rate EPS $0.67 (adjusted)
• Gross Margin: GAAP NIM 3.61% (includes $2.4M loan discount accretion); core NIM excluding accretion ~3.49% (contracted ~3 bps); holding $150M excess liquidity caused ~6 bps drag

Guidance:

• Full-year 2023 loan growth expected 7%–8%.
• Core margin expected flat to slightly down in Q4; loan-accretion to normalize to ~ $1M/quarter.
• 2024 noninterest expense expected to grow mid- to high-single-digits from a ~$39.5M run rate.
• Noninterest income run rate assumed ~$8.4M for 2024.
• Target efficiency ratio below 60% in back half of 2024; deposit betas expected to increase ~4% into Q4.

Business Commentary:

• Solid Fundamentals and Capital Accretion:
• Business First Bancshares generated a core ROAA of 1.1% in Q3, with a loan growth rate of 1.7% annualized and a deposit growth of $176 million, translating to a 14% annualized rate.

• The growth was driven by disciplined expense management, margin stability, and strategic capital allocation that yielded capital accretion.

• Deposit and Loan Growth:

• The company's deposit growth was $176 million, representing a 14% annualized increase, while loans grew at 1.7%.

• This performance was attributed to strategic deposit gathering campaigns and a focus on non-maturity deposits, despite slower loan growth due to high payoffs and selective lending.

• Improved Credit Quality:

• Business First Bancshares saw nonperforming loans as a percent of total loans decline to 0.33%, down from 0.36% in Q2.

• The improvement was due to the resolution of two non-accrual loans through charge-offs and a focus on maintaining good margin stability even with deposit growth.

• Margin Stability and Strategic Liquidity:

• The company's GAAP net interest margin remained at 3.61% in Q3, despite holding additional liquidity, which slightly impacted the margin.
• This stability was maintained through strategic liquidity management to prepare for loan term funding program maturities and support margin growth.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly said they were "very pleased with the quarter" and highlighted "solid fundamental shareholder-oriented operating performance," citing core ROAA 1.1%, $176M deposit growth, tangible book value per share growth and a $0.02 dividend increase—all framed as evidence of improving operating momentum.

Q&A:

• Question from Matt Olney (Stephens): Can you talk more about the funding strategy over the next few quarters and expectations to match loan growth?
  Response: Continue aggressive deposit campaigns to replace FHLB/wholesale; success this quarter enables unwinding higher-cost borrowings but continued deposit gathering is required to sustain that strategy.

• Question from Matt Olney (Stephens): On the margin outlook — the 'flat to slightly down' comment — was that with respect to core margin excluding accretion?
  Response: Yes — core margin ex-accretion is expected flat to slightly down, with the trajectory driven primarily by deposit flows and funding mix.

• Question from Matt Olney (Stephens): Liquidity build in anticipation of BTFP payoffs in early 2Q — is that fair?
  Response: Yes — carrying excess liquidity ahead of the BTFP maturity in early next year; fixed-rate loan maturities should make margin slightly accretive next year.

• Question from Brett Rabatin (Hovde Group): Are you aiming to get the C&D concentration below 100% and how do you see that portfolio evolving?
  Response: Yes — C&D exposure is trending down below 100% as we have curtailed new originations and many loans are maturing or transitioning out of the portfolio.

• Question from Brett Rabatin (Hovde Group): The 'other' geographies on Slide 26 — are these still in Texas and Louisiana?
  Response: All 'other' geographies are within our existing Texas and Louisiana footprint; the label simply groups smaller markets within the footprint.

• Question from Brett Rabatin (Hovde Group): What was the gross DDA growth and can you sustain DDA mix?
  Response: Generated $43M of new noninterest-bearing deposits this quarter (~$14M/month year-to-date); management is focused on maintaining/improving NIB share (~25%) through account openings and branch expansion.

• Question from Brett Rabatin (Hovde Group): Outlook for noninterest-bearing deposit mix by year-end?
  Response: Expect to finish the year around 25%–26% noninterest-bearing deposits, possibly down 1–2% from the quarter-end level, with continued focus on account openings to stabilize mix.

• Question from Graham Dick (Piper Sandler): How are you thinking about loan growth into 2024 — maintain 7%–8% or step down?
  Response: Expect to return to ~7%–8% loan growth next year; pipeline remains strong and recent payoffs were idiosyncratic, not a demand collapse.

• Question from Graham Dick (Piper Sandler): How are you prioritizing capital deployment (organic growth, portfolio restructuring, M&A)?
  Response: Priority is funding organic growth within capital; open to investment-portfolio restructurings and opportunistic M&A but those are secondary and evaluated only if strategically compelling.

• Question from Graham Dick (Piper Sandler): Any new ROA targets for next year or beyond?
  Response: Too early to set near-term targets; long-term aspiration remains toward ~1.15%–1.20% ROA, but short-term guidance pending budgeting and uncertainty.

• Question from Kevin Fitzsimmons (D.A. Davidson): You said $8.4M is the fee/income run rate for 2024 — correct?
  Response: Yes — $8.4M is the clean noninterest-income run rate assumption for 2024 after removing one-time items from 2023.

• Question from Kevin Fitzsimmons (D.A. Davidson): Expense run rate and 2024 growth guidance — $39.5M base and mid- to high-single-digit increase?
  Response: Correct — ~$39.5M is the normalized noninterest expense run rate and we expect mid- to high-single-digit growth in 2024 from that base.

• Question from Kevin Fitzsimmons (D.A. Davidson): How are you approaching expense control — specific moves or day-to-day management?
  Response: Ongoing daily discipline: rationalize branch footprint, limit hiring until revenue justifies it, redeploy resources to productive locations rather than broad cuts.

• Question from Kevin Fitzsimmons (D.A. Davidson): Was the financial-institutions deposit growth deliberate or client-driven?
  Response: Deliberate relationship strategy — we seek broader relationships with banks (loan sales, services), not a pure deposit-cost chase; FI deposits are ~ $200M and growing as part of relationship efforts.

• Question from Feddie Strickland (Janney Montgomery Scott): Would you expand outside your footprint or prioritize internal markets?
  Response: Priority remains internal footprint where ample opportunity exists; expansion outside (likely Southeast) is banker-driven and pursued only when the right team is available.

• Question from Feddie Strickland (Janney Montgomery Scott): Can efficiency ratio fall below 60% in back half of 2024?
  Response: Yes — management is targeting sub-60% core efficiency in back half of 2024, contingent on deposit gathering and funding costs.

• Question from Michael Rose (Raymond James): Quantify the seasonal municipal deposit impact?
  Response: Typically $150M–$200M of municipal deposits arrive over a quarter; timing (tax receipts) affects when they hit and they are generally interest-bearing, pressuring the margin.

• Question from Michael Rose (Raymond James): Loan-to-deposit ratio target — keep it below 100% and plans to grow core funding?
  Response: Yes — objective is to remain below 100% L/D; maintain excess liquidity to pay down BTFP and grow deposits at pace to support 7%–8% loan growth.

• Question from Michael Rose (Raymond James): Should we expect positive operating leverage next year?
  Response: That's the goal — management expects to continue delivering operating leverage as demonstrated the past few quarters, contingent on funding and revenue execution.

Contradiction Point 1

Deposit Growth Strategy

It involves the bank's strategy for deposit growth, which is crucial for maintaining healthy loan-to-deposit ratios and supporting loan growth.

Can you outline the funding strategy for the next few quarters, especially deposit vs. loan growth alignment? - Matt Olney (Stephens)

2023Q3: We are focusing on internal deposit campaigns and relying on production staff to generate deposit growth. - Gregory Robertson(CFO)

What are your expectations for the fourth-quarter core margin and any impact from Fed rate cuts? Also, any commentary on deposit cost competition? - Matt Olney (Stephens Inc.)

2025Q3: Deposit costs remain competitive, and we monitor competition closely. - Gregory Robertson(CFO)

Contradiction Point 2

Loan Growth Expectations

It involves the bank's expectations for loan growth, which is a key metric for assessing the health and future prospects of the business.

How are you projecting loan growth into 2024 considering rate environment impacts? - Graham Dick (Piper Sandler)

2023Q3: We expect to return to steady 7% to 8% loan growth for 2024. - David Melville(CEO)

Did loan growth rebound in Q4? - Matt Olney (Stephens Inc.)

2025Q3: We see early success and expect low to mid-single-digit loan growth in Q4. - Gregory Robertson(CFO), David Melville(CEO)

Contradiction Point 3

Deposit Growth Strategy

It involves differing strategies for deposit growth, which is crucial for managing interest expenses and loan growth.

Can you outline the funding strategy for the next few quarters, especially deposit growth alignment with loan growth? - Matt Olney (Stephens)

2023Q3: We are focusing on internal deposit campaigns and relying on production staff to generate deposit growth. - Gregory Robertson(CFO)

What are your deposit growth expectations and the impact of the Dallas branch sale? - Michael Rose (Raymond James)

2025Q1: The branch sale was completed in April, not affecting Q1 deposits. - Greg Robertson(CFO)

Contradiction Point 4

Loan Growth Expectations

It involves differing expectations for loan growth, which is a critical metric for the bank's financial performance and growth strategy.

How are you thinking about loan growth in 2024, given the interest rate environment? - Graham Dick (Piper Sandler)

2023Q3: We expect to return to steady 7% to 8% loan growth for 2024. Despite some payoff impacts, our pipeline is strong and demand is manageable. - David Melville(CEO)

What are your internal expectations for loan growth in Q2 and the remainder of the year? - Matt Olney (Stephens)

2025Q1: We expect loan growth and feel good about the pipeline, targeting low to mid-single-digit forecast quarter-over-quarter. By year-end, it will be lower single digits due to the flat first quarter. - Greg Robertson(CFO)

Contradiction Point 5

Fee Revenue Stability

It involves the stability of fee revenue, which is a critical component of the bank's noninterest income and overall financial health.

Why is $8.4 million considered the stable fee revenue base for 2024? - Kevin Fitzsimmons (D.A. Davidson)

2023Q3: $8.4 million is a clean run rate for 2024, as it excludes one-off items from 2023. We expect noninterest income to grow throughout the year, stabilizing at this figure. - Gregory Robertson(CFO)

Can you discuss your loan growth expectations for the year? - Michael Edward Rose (Raymond James)

2025Q2: We are very pleased with the year-over-year performance, final quarter of 9%, 9.4% and 9.5% respectively. We think that these fee revenues are becoming more sustainable at that level. - Gregory Robertson(CFO)